"Why make a $2 fuel when you can make a $5 chemical" – Cobalt CEO Rick Wilson

March 16, 2011 |

Cobalt CEO Rick Wilson, to the right of former California governor Arnold Schwarzenegger

Cobalt CEO Rick Wilson challenges himself, policymakers, and the industry, to focus on the importance of cost advantage in establishing and financing an integrated biorefinery industry.

“Why make a $2 fuel when you can make a $5 chemical?” asks Cobalt CEO Rick Wilson, whose company was branded in the public eye as Cobalt Biofuels for several years, but has morphed towards “Cobalt Technologies” (its original name) and is squarely focused on the market for renewable chemicals for the time being. By any name, it’s a hot company, ranked #14 in the world in this year’s 50 Hottest Companies rankings.

“I’m not saying that any of the companies, including us, should not be pursuing fuels. The markets are huge and the molecules work. But the country has got all its priorities screwed up. Here we are chasing fuels, which is the hardest problem to solve, instead of incentivizing or supporting companies to get into business by solving some of the easier problems first, like chemicals or other bio-based products?”

Wilson was in Atlanta this week, en route to Brazil like so many of his colleagues in the 50 Hottest Companies in Bioenergy – stopping off to address BioPro, which attracts a fairly dense concentration of suppliers and actors in the pulp & paper and related industries. In short, potential feedstock suppliers, strategic partners, co-location providers, or end-use customers for fuels and chemicals like those made by Cobalt and the cohorts in the Hot 50 and those just getting into business.

Compelled to co-locate

“We are compelled to co-produce and co-locate,” Wilson told the delegates, “by the opportunities for efficiencies in sharing power, water, feedstock aggregation, land, and in accelerating projects with faster permitting. But that doesn’t mean that fully integrating a bioenergy project into a pulp & paper operation is the optimal strategy. Co-location can produce faster results.”

“At our company, we produce n-butanol, normal butanol. That’s been produced for a long time, through the complex ABE process, using a lot of different traditional feedstocks. But the feedstocks are increasingly cost prohibitive. The usual barrier to using advanced microorganisms to produce biobutanol has been the rate of fermentation. In our process, we have dramatically overcome that, and accelerated the fermentation rate. Our fermentation time is four hours, compared to 72 hours with the ABE methods. So we have the opportunity to use low-cost feedstocks such as bagasse and wood biomass, to large-value markets where we have a significant cost advantage.

The pursuit of cost advantage

“Significant cost advantage. That’s key. Over the years, I think we all have looked at a lot of new bio-based businesses and wondered where that significant cost advantage will come from.

“Some of you know that there is normal butanol and isobutanol. Isobutanol, which is made by companies like Butamax and Gevo, has a higher octane rating and generally makes a better fuel blendstock. The advantage of normal butanol is that you can take normal and isomerize it, but you can’t take an isomer and normalize it. So, with n-butanol, you have advantages as a platform for a wider variety of chemicals.

“For us, we like wood, bagasse and glycerol as feedstocks. We see costs there in the $60 per ton for wood biomass, $40 for bagasse and $20 for glycerol. Those change, but there’s a significant enduring advantage compared to the cost of sugarcane or corn, which are well over $200 per ton. That’s lower than the cost of crude oil, but when you take into account the amount of energy you can access in corn or cane, the cost advantage can be minimal unless you have very high oil prices sustained for a very long time.

The market sizes

“The markets, for us, are the $7 billion n-butanol market, for acetates, acrylates, and glycerol esters, where the current pricing is $2300 per metric ton. Compare that to diesel or gasoline, both under $1000 per ton. Also, we have the OXO derivatives, such as butyric acid or 2-ethyl hexanol. That’s a $9 billion market trading at $2600 per ton. There are also the butene derivatives, such as isobutene, a $17 billion market trading at between $1200 and $1500 per metric ton. There are paints, solvents, plasticizers, paint dyes, stabilizers, preservatives and more in those markets.

“The markets are very small, compared to the fuels markets, where you have $250 billion in jet fuel, $980 billion for gasoline and $1040 for diesel. Those are a great story, but its hard to make money, and the first goal of any company should be to make money.

“The cost of making petroleum-based butanol is around $1230 per metric ton. We can make it from corn at $1200 per ton, cane at $1170 per ton. But when we look at wood, our cost drops to $800 per ton; or $650 per ton from bagasse, or $380 from glycerol.

Why build a demonstration? Why not go straight from pilot to commercial?

“That’s pilot data, and we are currently finalizing our plans for our demonstration plant. Learning what we have learned in our pilot – about sterility, handling, the operational protocols, and all those issues, not just fermentation, as we have stepped up from 60 ML bench, to 10 liter batches, and now up to 154 gallon, 267 pound per day continuous pilots, it really makes you wonder how people convince investors to go directly from pilots to commercial-scale. I think you have to demonstrate the technology at some reasonable scale-up.”

“So we’ll be operating a 470,000 gallon per year demonstration by Q1 2012, and we’ll begin signing MOUs for offtake in 2012 for our first commercial plant, which will have a 10-50 million gallon capacity.

“Yields? We are at 87 gallons per dry ton of biomass, and we make 15 gallons of acetone. Geography? We are expecting to develop our demonstration in the US at a location to be announced shortly. We are looking at opportunities in India and Brazil for a first commercial plant.

Why Asia?

“Why Asia? That’s where the markets are for chemicals. We also like the bagasse, although we recognize that the plants there are generally combusting their bagasse for power, and the sugar mills there will need to put in some process improvements in order to free up that bagasse. But the financial rewards for doing so are compelling.”

With that, Wilson doffed his cap, took a few questions, and joined the long train of integrated biorefinery execs heading for Brazil, land of bagasse. But he leaves a compelling question behind for the rest of us to consider. Why indeed, make a $2 fuel when you can make a $5 chemical? For sure, there are good answers, and companies like BP and Shell can supply them. But every project should have that answer after it has assayed it opportunities in the fuels markets.

Which comes first: fuels or chems?

Raises another compelling point for policymakers. If fuels incentives are just too tough for the country to afford, why not construct a mechanism by which advanced biorefineries can at least get a hand-up in getting into business as bio-based chemicals producers.

That can in itself create the proof positive of performance that may well crack open the project finance market, and create the very expansion of fuel-producing capacity that the Renewable Fuel Standard expects and that the US, among many countries, both needs and can benefit from.

Rick Wilson will be a presenter at the Advanced Biofuels Leadership Conference next month in DC, and will also be joining us as a presenter at our newest high-level industry gathering, Renewable Chemicals Live!, which we will be hosting at the Sheraton Crystal City in Arlington, VA, June 9th and 10th.

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